A Registered Investment Adviser was censured and fined $75,000, and its CEO/CCO was fined $25,000, after multiple compliance violations over an extended period of time. Additionally, the RIA was required to retain a third-party compliance consulting firm through December 2024.
This case is another example of an Adviser underestimating the importance of designating a compliance team to support the compliance efforts of its firm. In a prior Vigilant post, we provided caution to Dually Hatted Executives, about unintended outcomes from “Do it yourself Compliance.” For those that this may apply to, we hope this can serve as a helpful reminder.
What Issues Occurred?
- The CEO of the Firm also served as the CCO from 2012 to 2021.
- This more so highlights the importance of considering Compliance Support for dually hatted CCOs.
- The Firm failed to design Compliance Policies and Procedures to prevent violations.
- The Firm adopted a handbook for its Policies from a Professional Trade Organization without any attempt to tailor it to the services they provided.
- The handbook contained actual statements that it was not meant to be adopted for compliance policies and procedures, but to be referenced for ethics guidance.
- There was no recorded Compliance Training performed.
- Annual Compliance Reviews were not performed.
- Their Code of Ethics, also adopted from the handbook, had generic references that did not fulfill any of the requirements under Section 204A of the Advisers Act.
- There were no requirements for access persons to report personal securities transactions and holdings.
- The required Form CRS was submitted nine months after the June 2020 deadline.
Vigilant’s Final Conclusion
This recent Fine by the SEC should be taken as a reminder and caution for Dually Hatted Executives.
Compliance responsibilities could have a higher likelihood of falling behind other priorities when executives have limited time and resources. Unfortunately, regulatory headaches could be incredibly costly to your Firm’s success.
It is vital to have an experienced Compliance Officer(s) assisting, building, and maintaining your Compliance Policies and Procedures.
When Firm resources are limited, a Third-Party Compliance Firm may be a worthy investment to limit regulatory burden.